Alternative splicing is one of the major mechanisms by which genes can generate multiple protein isoforms with potentially different activities. Activity differences may depend directly on the presence or absence of a distinct protein domain or indirectly on post-translational modifications associated with the alternatively included domains. The gene Mitf, encoding a basic helix-loop-helix-leucine zipper transcription factor with critical roles in the biology of melanin-bearing pigment cells, is an excellent example showing the intricate interplay between alternative splicing and post-translational modifications. The gene's subexon 2B contains the codon for serine-73 whose phosphorylation has previously been implicated in the regulation of MITF activity and stability. In wild-type mice, this subexon is present in over 90% of mature Mitf mRNA but in mice carrying a targeted serine-73-to-alanine mutation, it is present in only 10% of such mRNAs. This observation raises three principal questions: What are the mechanisms behind the physiological alternative splicing in wild-type mice and its alteration in mutants? What is the role of exon 2B in developing and adult melanocytes? And what is the role of serine-73 phosphorylation in these cells? We found that both wild-type and mutant exon 2B splicing is regulated by two different serine/arginine-rich proteins, SRp30c and SRp40, whereby SRp40 binds with high affinity to an RNA sequence that contains the codon for serine-73 and with lower affinity when this codon is mutated. We further found that the lack of exon 2B reduces the anti-proliferative activity of MITF. Lastly we found that the forced incorporation of an alanine-73-containing exon 2B, achieved by an additional targeted mutation at the 5'alternative splice site, leads to mice with increased skin pigmentation suggestive of increased cell differentiation. Intriguingly, exclusion of exon 2B has also been found in a subset of metastatic melanomas. The results suggest that alternative splicing of exon 2B of Mitf regulates the balance between cell proliferation and cell differentiation and so is a critical determinant of both normal and abnormal melanocyte physiology.